IP STRATEGY HOLDINGS, INC.
For the period ended Jun 30, 2026. Filed Oct 23, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2026 · Filed Oct 23, 2026
IPST$2.15-4.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-03-31; filed 2026-05-20.
0001788230-26-000068
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-06-30; filed 2026-10-23.
0001788230-26-000085
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 208 previous paragraphs and 262 current paragraphs.
105 unchanged; 63 reworded; 61 added; 37 removed; 3 previous and 33 current paragraphs rearranged.
Tables are not compared: 24 previous and 47 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (61)
Current report
2 On June 25, 2026, the Story Foundation rebranded as The DATA Foundation, and migrated its $IP tokens to $DATA tokens at a 1:1 ratio. All $IP token references included herein as of and for all periods presented have been changed to $DATA token references to reflect the effect of that June 25, 2026 migration, unless otherwise noted.
Current report
result in the wind-down of all existing validator infrastructure. As the network evolves, we intend to evaluate alternative opportunities for generating income through our digital asset treasury activities and potential participation in new network-related services. The availability, timing and economic benefits of these opportunities will depend on market conditions, applicable contractual restrictions and the development of the DATA ecosystem, and there can be no assurance that these activities will generate revenues comparable to those historically generated by our validator operations.
Current report
Cryptocurrency Validator Operations and Announced Transition to Sui
Current report
In September 2025, we completed testing and onboarding of a validator to stake a substantial portion of our $DATA token holdings and earn staking rewards. By mid-September 2025, we had completed onboarding the bulk of our tokens onto the validator, through which we began earning daily rewards in the form of additional $DATA tokens. These rewards have become the Company's primary source of revenue and have historically generated margins exceeding approximately 85%. We recognize income from validator activities in U.S. dollars based on the fair value of the $DATA tokens received at the time the rewards are earned, using applicable market pricing information. Recent developments involving the DATA Network, including changes to its underlying blockchain infrastructure, validator participation requirements, staking reward mechanisms and network governance, could adversely affect the Company's ability to continue operating its validator business, the amount and value of staking rewards earned, and the profitability of those operations prior to the anticipated termination of validator services in connection with the migration to Sui.
Current report
On October 12, 2026, the Sui Foundation and DATA Foundation announced a strategic transaction under which the DATA Network would migrate from its existing independent blockchain to a protocol operating natively on Sui. The announced migration contemplates retirement of the independent DATA blockchain and elimination of the existing validator infrastructure, including the infrastructure through which the Company currently earns staking rewards. Consequently, upon completion of the migration, we expect our current validator operations and associated revenue stream to terminate.
Current report
Although the DATA Foundation has indicated that opportunities may exist for certain infrastructure participants to provide sequencer or similar services under the new network architecture, the Company has not entered into any definitive agreement establishing its eligibility, compensation, responsibilities or right to participate in such activities. There can be no assurance that the Company will obtain a replacement infrastructure role or that any resulting revenue would equal or exceed the revenue currently generated through validator operations.
Current report
The timing of the migration, termination of existing validator activities and availability of any alternative revenue opportunities remain uncertain. The loss of our validator revenue without a corresponding replacement could materially adversely affect our future revenue, operating margins, cash flows and results of operations. Management also continues to evaluate new opportunities to expand operating lines and business segments to grow revenue and overall value for the enterprise while also reviewing options to add cash to the balance sheet to improve liquidity.
Current report
The additional NOLs generated during 2025 of approximately $13.3 million may also be subject to the Section 382 limitation to the extent such losses are treated as pre-change attributes or otherwise limited under applicable tax rules. As a result, we expect that a portion of our NOL carryforwards, including those generated in 2025, will be usable only over an extended period of time in accordance with the applicable annual limitation amounts.
Current report
Transition of Story Foundation to The DATA Foundation
Current report
On June 25, 2026, the Story Foundation announced its transition and rebranding to The DATA Foundation, including the renaming of the Story Network as the DATA Network and the network's native $IP token as $DATA. In connection with the transition, The DATA Foundation stated that existing $IP tokens would migrate to $DATA on a one-for-one basis without requiring action by holders of native $IP tokens. The DATA Foundation described the transition as a strategic refocusing of the network toward infrastructure supporting artificial intelligence training data, including data sourcing, provenance, licensing, auditability and monetization. The DATA Foundation stated that the transition did not involve a change to the underlying blockchain network or technology.
Current report
The transition represents an evolution of the Story Foundation's prior focus on programmable intellectual property. According to The DATA Foundation, its experience developing applications across entertainment, creator tools, gaming and other intellectual-property categories led it to identify artificial intelligence training data as an area demonstrating significant demand for its technology. The DATA Foundation has accordingly positioned the DATA Network as infrastructure through which data may be sourced, processed, verified and licensed for use in artificial intelligence applications.
Current report
In connection with the June 25, 2026 transition, The DATA Foundation also introduced Trace, a public audit and verification platform designed to create verifiable records relating to the provenance, contributor consent, licensing and other information associated with data made available for artificial intelligence applications. Each contribution registered through the DATA Network is intended to generate a verifiable receipt that may be used to establish an audit trail relating to the underlying data without requiring the underlying data itself to be publicly disclosed.
Current report
KLED Integration, AI Training Data and Trace
Current report
Also on June 25, 2026, The DATA Foundation launched Trace, a public audit and verification platform designed to create verifiable on-chain records relating to the provenance, consent, licensing and payment history of data registered on the DATA Network. On the same date, The DATA Foundation announced an integration with KLED.ai (“KLED”), an opt-in marketplace through which individuals may contribute data for licensing and other use by artificial intelligence developers and other data purchasers. In connection with the integration, KLED began onboarding a pool of more than 1.5 billion user-contributed records to the DATA Network. The 1.5 billion figure represents records uploaded to or available through KLED and being onboarded to the DATA ecosystem and should not be interpreted as the number of records that had completed registration on-chain as of June 25, 2026.
Current report
The DATA Foundation also invested $3 million in KLED on June 25, 2026. KLED reported that the investment increased its total funding to approximately $14 million. In connection with the relationship, Avi Patel, KLED's founder and Chief Executive Officer, joined The DATA Foundation as Chief Data Officer in an advisory capacity while continuing to lead KLED. The DATA Foundation stated that the relationship is intended to combine KLED's data-sourcing marketplace with the DATA Network's audit and licensing infrastructure.
Current report
The DATA Foundation currently reports that KLED has received more than 1.5 billion records uploaded by individual contributors and is receiving more than five million additional uploads per day. Under the integration, KLED's contributor receipts, consent and policy records, provenance information and other audit information may be recorded and verified through Trace and the DATA Network.
Current report
The DATA Foundation has described KLED as a significant source of data for the DATA Network and as part of a broader ecosystem of applications intended to address the sourcing, processing, verification and licensing of artificial intelligence training data.
Current report
Registration Activity Through June 30, 2026
Current report
Following the June 25, 2026 transition and commencement of the KLED integration, registration activity on the DATA Network increased. According to DATA Foundation updates reported following quarter end, more than 10 million records had been registered on the DATA Network as of June 30, 2026.
Current report
Management believes that registration activity is a relevant indicator of utilization of the DATA Network because a registration represents the creation of a verifiable receipt associated with a data contribution or record. Registration counts should not, however, be interpreted as equivalent to revenue, unique data assets, customers or completed commercial licensing transactions, and historical registration activity may not be indicative of future network utilization.
Current report
Subsequent Network Growth
Current report
Following June 30, 2026, The DATA Foundation reported continued growth in DATA Network activity. On July 24, 2026, the DATA Network surpassed 100 million cumulative on-chain data registrations. The DATA Foundation has stated that registration count is an operating metric it uses to evaluate utilization of the network because registrations represent use of the network for the creation of verifiable records relating to data provenance, contributor information and related rights and licensing information.
Current report
As of October 13, 2026, The DATA Foundation's publicly-available network reporting indicated approximately 277 million receipts recorded on the protocol, approximately 532,000 contributors and approximately 390 terabytes of data audited through the network. These figures represent growth from the more than 10 million registrations reported as of June 30, 2026 and the more than 100 million cumulative registrations reported on July 24, 2026.
Current report
The 277 million receipts reported as of October 13, 2026 should be distinguished from the more than 1.5 billion records reported as uploaded to KLED. The latter represents the broader pool of records uploaded or available for onboarding through KLED, while the receipt count represents records for which a receipt had been recorded on the DATA protocol as of the applicable measurement date.
Current report
The DATA Foundation's publicly available information also indicated as of October 13, 2026 that KLED had more than 1.5 billion records uploaded by contributors and was receiving more than five million new uploads per day. The difference between uploaded records and protocol receipts indicates that a substantial inventory of uploaded data remained available for potential processing or registration on the DATA Network. There can be no assurance as to the timing or extent to which uploaded records will ultimately be registered, licensed or otherwise generate economic activity on the network.
Current report
Trace serves as the DATA Network's public audit layer and is designed to provide records relating to provenance, contributor consent, applicable policy terms and other information associated with contributed data. The DATA Foundation has positioned Trace, together with KLED and other applications operating on the DATA Network, as infrastructure intended to enable developers, data purchasers and other parties to evaluate and verify rights and provenance associated with data intended for artificial intelligence applications.
Current report
The commercial adoption, utilization and financial impact of the DATA Network, Trace, KLED and related applications remain subject to development, execution, market-adoption and other risks. Registration volume, contributor counts, data volume and other operating metrics are reported by The DATA Foundation and other ecosystem participants and should not be interpreted as an indication or guarantee of future revenue, network activity, token value or financial performance.
Current report
On October 12, 2026, The DATA Foundation announced a strategic transaction pursuant to which the Sui Foundation committed to invest approximately $30 million in the DATA Network, becoming its largest institutional stakeholder. In connection with the transaction, The DATA Foundation announced plans to migrate the DATA Network to the Sui blockchain and discontinue operation of its independent Layer 1 blockchain and associated validator infrastructure. The Company currently holds $DATA tokens as part of its digital asset treasury and participates in the network as a validator.
Current report
$IP tokens migrated to $DATA tokens on a one-for-one basis as of October 9, 2026 with no other change to existing token supply. It was announced by The DATA Foundation that vesting schedules and lockup restrictions were expected to be preserved, but no details were yet supplied. The DATA Foundation also noted that at some point yet to be determined after migration it is expected there will no longer be a need for third party validators, which would necessarily negate the need for validation services provided by the Company, although it noted opportunities may exist to participate in a sequencer or similar infrastructure role under the new network architecture. The timing, requirements, and economic benefits of any such role have not yet been determined.
Current report
The Company continues to evaluate the potential effects of the transaction and planned migration on its digital asset holdings and network activities. As of the date of this filing, the ultimate financial and operational impacts of the transaction and migration remain uncertain.
Current report
Cost of revenue, sales and marketing, and general administrative expense, net of non-cash share-based compensation was as follows:
Current report
Gross Margin numbers were as follows for the three months ended June 30, 2026 and 2025 as follows:
Current report
Gross margin was approximately 75.7% and 0% for the three months ended June 30, 2026 and 2025, respectively, based upon total net revenues of approximately $554,000 and $0, respectively. As noted above in Cost of Revenue, of the rewards earned for staking third party tokens, 95% is paid out to those third parties, with the net of 5% being recognized by us. This high cost inflates the overall cost of revenue and reduces our overall gross profit and gross margins. Excluding these third party expenses the cost of operating the validator and earning our own rewards is relatively fixed, consisting primarily of the party consulting services to run the validator and the modest monthly expenses associated with the web service hosting the validator. Because we earn a fairly steady number of tokens in any given period of time from validator services, and because the costa of earning the tokens are relatively fixed, the biggest driver of gross profit and resulting gross margin is the market price of the token itself. The higher the token price the great the gross profit and gross margin. At $1.00 per token the gross profit and gross margin would be much higher than if the token was valued at $0.30 when compared against the same fixed operating costs.
Current report
Net revenues were approximately $182,000 and $1,321,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of approximately $1,139,000, or 86.2%, period over period.
Current report
Gross profit / (loss) was approximately $(10,000) and $227,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of approximately $237,000, or 104%, period over period, and included:
Current report
Total gross margin decreased to (5.5)% from 17.2% on lower net revenues. Management is undergoing a significant change in focus for the spirits reporting segment of our business by eliminating our own production leases and disposing of equipment to get asset-light, instead working through third-party licensees and producers to produce our products for sale into the market. The use of our brands and recipes by trusted licensees can also generate revenue via licensing fees. License fee revenues to us can grow as the third-party licensees increase placement and sales of our brands. Because we would not have the obligations or costs associated with production, marketing or sales for such licensed products, any licensing revenue earned by us should come with higher margins than past revenue tied to our own past production and sales efforts. Finally, because we have now removed all of our own production leases and equipment, we expect the unallocated production overhead expenses incurred in the past to be mostly eliminated on a go-forward basis (See also below our comments related to this in more detail in Non-GAAP Financial Measures).
Current report
Sales and marketing expenses were approximately $324,000 for the three months ended June 30, 2026 compared to approximately $1,972,000 for the three months ended June 30, 2025. This approximately $1,648,000 decrease included:
Current report
General and administrative expenses were approximately $3,253,000 for the three months ended June 30, 2026, compared to approximately $4,904,000 for the three months ended June 30, 2025. This approximately $1,651,000 decrease included:
Current report
The additional NOLs generated during 2025 of approximately $13.3 million may also be subject to the Section 382 limitation to the extent such losses are treated as pre-change attributes or otherwise limited under applicable tax rules. As a result, we expect that a portion of our NOL carryforwards, including those generated in 2025, will be usable only over an extended period of time in accordance with the applicable annual limitation amounts.
Current report
Cost of revenue, sales and marketing, and general administrative expense, net of non-cash share-based compensation is as follows:
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Removed paragraphs (37)
Previous report
Market Price of the $IP Token
Previous report
We use the fair value method of accounting to report our operating results, in accordance with U.S. GAAP. We currently own approximately 52.3 million $IP Tokens (as of March 31, 2026), some of which were acquired at a significant discount to the then market value. For each reporting period, our $IP Token treasury will be reflected at the market price of $IP Tokens and the aggregate change in the fair value of our treasury of $IP Tokens will be reflected as a gain or loss in our condensed consolidated statement of operations. For each reporting period, our condensed consolidated statement of operations will reflect a net gain or loss commensurate with the respective change in market value of a $IP Token (across the number of $IP Tokens that we hold in our treasury). Accordingly, assuming the number of $IP Tokens we hold remains constant at approximately 52.3 million, every $1.00 increase in the market value of a $IP Token will represent a gain of approximately $52.3 million that we must recognize; and conversely, every $1.00 decrease in the market price of a $IP Token will represent a loss of approximately $52.3 million that we must recognize. The more the $IP Token price increases or decreases in the market, the greater the gain or loss we will be required to report, and depending on market conditions from quarter to quarter, we could see significant swings in gains or losses simply due to marking the value of the $IP tokens we hold to their market value.
Previous report
Interest Expense
Previous report
Restructure Costs
Previous report
•$0.8 million available in 2024 (partial year following the ownership change);
Previous report
•approximately $5.4 million per year from 2025 through 2028;
Previous report
•approximately $4.7 million in 2029; and
Previous report
•approximately $1.0 million per year thereafter until the remaining attributes are fully utilized.
Previous report
Netting out the non-cash share-based compensation from the Total Operating Expenses resulted in cash based Operating Expenses for the three months ended March 31, 2026 of approximately $66,624,000, compared to approximately $2,723,000 for the three months ended March 31, 2025, a decrease of approximately $63,901,000.
Previous report
Net revenues were approximately $260,000 and $1,092,000 for the three months ended March 31, 2026 and 2025, respectively, a decrease of approximately $832,000, or 76.2%, period over period.
Previous report
Overall gross margins decreased to (54.2)% from 24.9% on lower net revenues, but management expects meaningful improvement going forward as we further reduce excess capacity and headcount through additional transitioning to third-party production in 2026, with a continued focus on higher-margin initiatives, including direct-to-consumer and online sales. (See also below our comments related to this in more detail in Non-GAAP Financial Measures).
Previous report
Gross Profit Analysis - Spirits Business
Previous report
Spirits business gross margin was approximately (54.2)% in the three months ended March 31, 2026 compared to approximately 24.9% in the three months ended March 31, 2025 (or approximately 52.4% and 67.1%, respectively, excluding unabsorbed overhead) on net revenue of approximately $260,000 and $1,092,000. Product gross margins were approximately (63.0)% in the three months ended March 31, 2026 compared to approximately 2.8% in the three months ended March 31, 2025 (or approximately 49.7% and 57.9%, respectively, excluding unabsorbed overhead). (See also below our comments related to this in more detail in Non-GAAP Financial Measures).
Previous report
Sales and marketing expenses were approximately $442,000 and $1,315,000 for the three months ended March 31, 2026 and 2025, respectively, as follows:
Previous report
General and administrative expenses were approximately $2,650,000 for the three months ended March 31, 2026, compared to approximately $1,408,000 for the three months ended March 31, 2025. This approximately $1,242,000 increase included:
Previous report
Interest Expense
Previous report
Restructure Costs
Previous report
•$0.8 million available in 2024 (partial year following the ownership change);
Previous report
•approximately $5.4 million per year from 2025 through 2028;
Previous report
•approximately $4.7 million in 2029; and
Previous report
•approximately $1.0 million per year thereafter until the remaining attributes are fully utilized.
Previous report
It is important to note specifically that the Adjusted Gross Margin excluding unabsorbed overhead includes revenue from low margin barrel production contracts we had in 2024 that we do not expect to be performing for the foreseeable future as we focus on higher margin activities.
Previous report
In an ideal scenario a producer would be at 100% utilization and producing high margin items exclusively. Knowing this, we are examining operations, assets and our existing real estate footprint to drive better utilization and reduce overhead with the goal of driving down unabsorbed overhead and decreasing unused asset capacity.
Previous report
Net Cash Provided by Investing Activities
Previous report
•contemporaneous valuations of our common stock performed by independent third-party specialists;
Previous report
•the lack of marketability inherent in our common stock;
Previous report
•our actual operating and financial performance;
Previous report
•our current business conditions and projections;
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•the hiring of key personnel and the experience of our management;
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•our history and the introduction of new products;
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•our stage of development;
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•the likelihood of achieving a liquidity event, such as an initial public offering, a merger, or acquisition of our company given prevailing market conditions;
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•the operational and financial performance of comparable publicly traded companies; and
Previous report
•the U.S. and global capital market conditions and overall economic conditions.
Previous report
In valuing our common stock, the fair value of our business was determined using various valuation methods, including combinations of income and market approaches with input from management. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate that is derived from an analysis of the cost of capital of comparable publicly traded companies in our industry or similar business operations as of each valuation date and is adjusted to reflect the risks inherent in our cash flows. The market approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. From the comparable companies, a representative market value multiple is determined and then applied to the subject company’s financial forecasts to estimate the value of the subject company. The fair value of our business determined by the income and market approaches is then allocated to the common stock using either the option-pricing method (OPM), or a hybrid of PWERM and OPM methods.
Previous report
Application of these approaches and methodologies involves the use of estimates, judgments, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable public companies, and the probability of and timing associated with possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.
Previous report
For valuations, our board of directors will determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant. Future expense amounts for any period could be affected by changes in our assumptions or market conditions.
Reworded paragraphs (63)
Previous wording
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this filing. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section titled “Risk Factors” and elsewhere in this filing. Unless the context otherwise requires, for the purposes of this section,. “IP Strategy,” “we,” “us,” “our,” or the “Company” refer to IP Strategy Holdings, Inc. and its consolidated subsidiaries, including its principal operating subsidiary, Heritage Distilling Company, Inc. (“Heritage,” “Heritage Distilling” or “HDC”).
Current wording
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this filing. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section titled “Risk Factors” and elsewhere in this filing. Unless the context otherwise requires, for the purposes of this section, “IP Strategy,” “we,” “us,” “our,” or the “Company” refer to IP Strategy Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries, including its principal operating subsidiary, Heritage Distilling Company, Inc., a Washington corporation (“Heritage,” “Heritage Distilling” or “HDC”), Thinking Tree Spirits, Inc., an Oregon corporation, and IP Strategy, LLC, a Nevada limited liability company.
Previous wording
In connection with the development of our cryptocurrency treasury reserve policy, on August 15, 2025, we completed a $223.8 million private investment in public equity (“PIPE”) transaction wherein we acquired 53.2 million $IP Tokens in our digital asset treasury. Details of the PIPE transaction are summarized below. The $IP Token is the native cryptocurrency of the Story Network, running on the Story IP layer 1 blockchain. The $IP protocol and related $IP Tokens can be used to pay for computational services on the Story Network, to mint or manage digital rights objects, or to transfer value in network-native transactions. These tokens can also be exchanged for fiat currencies, such as the U.S. dollar, at rates determined on digital asset trading platforms or in individual end-user-to-end-user transactions using decentralized trading protocols. As part of our treasury reserve strategy, we set up a validator business as a reporting segment to generate ongoing recurring revenue from activities associated with such validation efforts.
Current wording
In connection with the development of our cryptocurrency treasury reserve policy, on August 15, 2025, we completed a $223.8 million private investment in public equity (“PIPE”) transaction wherein we acquired 53.2 million $DATA 2 tokens in our digital asset treasury. Details of the PIPE transaction are summarized below. The $DATA token is the native cryptocurrency of the DATA Network, running on the DATA layer 1 blockchain. The $DATA protocol and related $DATA tokens can be used to pay for computational services on the DATA Network, to mint or manage digital rights objects, or to transfer value in network-native transactions. These tokens can also be exchanged for fiat currencies, such as the U.S. dollar, at rates determined on digital asset trading platforms or in individual end-user-to-end-user transactions using decentralized trading protocols. As part of our treasury reserve strategy, we set up a validator business as a reporting segment to generate ongoing recurring revenue from activities associated with such validation efforts. In addition to our validator operations, we have been developing and implementing digital asset treasury management strategies intended to generate income from our $DATA token holdings while maintaining significant exposure to the underlying digital assets. These activities include our existing covered-call program and the evaluation of additional financial and commercial arrangements designed to generate recurring income, enhance treasury flexibility and support the long-term development of our cryptocurrency and related business segment.
Previous wording
“referee” in a blockchain network. Its job is to check that transactions on the network are real and follow the network rules. Validators are randomly selected to propose a new block of transactions to be added to the blockchain. When a participant attempts a transaction, that participant is required to pay a minimum “gas” fee. A participant also can opt to pay an additional fee to ensure that its transaction is added to the blockchain more quickly. These fees are denominated in the same cryptocurrency that is evidenced by the blockchain. The validator chosen to propose a block will (when that block is successfully confirmed by the other validator nodes) receive the gas fees for all transactions in the block (known as “execution layer rewards”). In addition, the blockchain automatically issues cryptocurrency as rewards to validators who successfully propose a block. While we currently operate our own Story Network validator services, in the future we may seek to “delegate” a portion of our $IP Tokens to third-party validation service providers in exchange for a percentage of its validation fees. In addition to staking revenue, we also generate crypto and related revenue from the sale of covered call contracts, which began in January 2026.
Current wording
In August 2025, we determined to focus our growing cryptocurrency efforts on the native cryptocurrency of the DATA Network referred to as $DATA tokens. As part of this business segment, we established a new validator business related to $DATA tokens, staking 43.5 million of the 53.2 million $DATA tokens we secured in the August 15, 2025 PIPE transaction. To become a network validator, a holder of $DATA tokens is required to put up or “stake” $DATA tokens as collateral (like a security deposit) that shows the DATA Network that it has “skin in the game.” A cryptocurrency validator is like a digital “notary” or “referee” in a blockchain network. Its job is to check that transactions on the network are real and follow the network rules. Validators are randomly selected to propose a new block of transactions to be added to the blockchain. When a participant attempts a transaction, that participant is required to pay a minimum “gas” fee. A participant also can opt to pay an additional fee to ensure that its transaction is added to the blockchain more quickly. These fees are denominated in the same cryptocurrency that is evidenced by the blockchain. The validator chosen to propose a block will (when that block is successfully confirmed by the other validator nodes) receive the gas fees for all transactions in the block (known as “execution layer rewards”). In addition, the blockchain automatically issues cryptocurrency as rewards to validators who successfully propose a block. In addition to our validator operations, we began generating income from the sale of covered-call contracts in January 2026 as part of our broader digital asset treasury management strategy. We continue to evaluate opportunities to expand these activities through additional option-based strategies, structured financial arrangements, digital asset lending and other market-based opportunities that may allow us to generate income from our $DATA token holdings while maintaining substantial exposure to the DATA ecosystem. In October 2026, The DATA Foundation announced plans to migrate the DATA Network to the Sui blockchain, which is expected to
Previous wording
Our spirits business operates in the craft segment of the approximately $288 billion global spirits market. Our growth strategy is centered on three primary initiatives. First, we are expanding higher-margin DtC sales through a compliant third-party platform that enables shipments to consumers in 46 states, representing approximately 96.8% of the U.S. population, allowing us to build direct customer relationships and leverage consumer data to drive repeat purchases and targeted marketing. Second, we aim to increase wholesale volume through key national and regional accounts by using DtC brand-building efforts to support distributor partnerships and retail pull-through. Third, we are growing the TBN model, under which tribal partners own and operate production and retail businesses using our brands, intellectual property and operational support in exchange for royalties on gross sales. We believe this regional production and distribution network enhances brand localization, drives trial and awareness, and creates synergies with our wholesale channels as both footprints expand.
Current wording
Our spirits business operates in the craft segment of the approximately $288 billion global spirits market. Our growth strategy is centered on three primary initiatives. First, we are expanding higher-margin DtC sales through a compliant third-party platform that enables shipments to consumers in 46 states, representing approximately 96.8% of the U.S. population, allowing us to build direct customer relationships and leverage consumer data to drive repeat purchases and targeted marketing. Second, we aim to increase wholesale volume through key national and regional accounts by using DtC brand-building efforts to support distributor partnerships and retail pull-through. Third, we are continuing to test our TBN model, under which tribal partners own and operate production and retail businesses using our brands, intellectual property and operational support in exchange for royalties on gross sales. We believe this regional production and distribution network has the potential to enhance brand localization, drives trial and awareness, and creates synergies with our wholesale channels as both footprints expand.
Previous wording
Prior to August 2025, most of our revenue was generated by retail sales of our spirits in our retail tasting rooms, which we closed on December 31, 2025, wholesale spirits sold through distributors, and spirits sold through our eCommerce platform. Beginning in September 2025, we established a validator program to begin deriving revenue from staking rewards tied to our $IP Token holdings, which now accounts for the majority of our revenue at margins exceeding 95%. Going forward, as we transition spirits production to third parties we expect our expenses related to production, sales and marketing of our spirits brands will go down. Also, as we focus on the highest margin spirits brands while we shed high overhead real estate leases, equipment and depreciation expenses, we expect to see margins associated with our sprits brands to increase. Given our relatively small production volumes compared to the broader spirits market, we believe that disciplined cost management and favorable barrel pricing position us to improve topline revenue and profitability within our spirits segment as volumes grow, although continued macroeconomic uncertainty could impact overall consumer demand.
Current wording
Prior to August 2025, most of our revenue was generated by retail sales of our spirits in our retail tasting rooms (which we closed on December 31, 2025), wholesale spirits sold through distributors, and spirits sold through our e-commerce platform. Beginning in September 2025, we established a validator program to derive revenue from staking rewards tied to our $DATA token holdings, which has become the primary source of our revenue at margins exceeding approximately 85%. However, on October 12, 2026, the Sui Foundation and DATA Foundation announced that the DATA Network would migrate to the Sui blockchain and that the existing independent DATA blockchain would be retired. The announced migration is expected to eliminate the existing validator infrastructure through which we earn staking rewards. Accordingly, we expect our current validator-related revenue to terminate following completion of the migration, unless alternative revenue-generating arrangements are established. The timing of the migration and the resulting financial impact on our operations remain uncertain. Going forward, as we transition spirits production to third parties, we expect our expenses related to production, sales and marketing of our spirits brands to be mostly eliminated. Also, as we focus on the highest margin spirits brands while we shed high overhead real estate leases, equipment and depreciation expenses, we expect to see margins associated with our sprits brands to increase, particularly where we license our brands and recipes to third parties who pay us net license fees.
Previous wording
Our validator business revenue is primarily generated through blockchain rewards from participation in proof-of-stake networks (“Staking Revenue”), where we validate or create blocks on the Story Network using staking validators we control. In exchange for these validation services, we earn $IP Tokens, the native token of the Story Network. Revenue is recognized at the point in time when a block is successfully created or validated and the related rewards are transferred to digital wallets we control. Each block validation represents a distinct performance obligation. We recognize blockchain rewards revenue (Staking Revenue) on a gross basis, as we act as principal of our contracts by providing the $IP Tokens required for staking. Blockchain rewards are recorded in crypto and related revenue on the condensed consolidated statements of operations. Revenue is measured based on the number of tokens received and their fair value at contract inception.
Current wording
Our validator business revenue is primarily generated through blockchain rewards from participation in proof-of-stake networks (“Staking Revenue”), where we validate or create blocks on the DATA Network using staking validators we control. In exchange for these validation services, we earn $DATA tokens, the native token of the DATA Network. Revenue is recognized at the point in time when a block is successfully created or validated and the related rewards are transferred to digital wallets we control. Each block validation represents a distinct performance obligation. We recognize blockchain rewards revenue (Staking Revenue) on a gross basis, as we act as principal of our contracts by providing the $DATA tokens required for staking. Blockchain rewards are recorded in crypto and related revenue on the condensed consolidated statements of operations. Revenue is measured based on the number of tokens received and their fair value at contract inception.
Previous wording
We also generate crypto and related revenue from the sale of covered call contracts, which began in January 2026. The premium received from the sale of the call option is recognized as a component of crypto and related revenue in our condensed consolidated statement of operations. The premium is amortized to crypto and related revenue over the life of the option using the straight-line method. We record the option as a derivative liability on our condensed consolidated balance sheet at fair value, with changes in fair value recognized in crypto and related revenue until the option expires or is exercised. If the option is exercised, we settle the underlying security at the exercise price, and the premium is recognized as a reduction of the carrying amount of the $IP Token
Current wording
We also generate crypto and related revenue from the sale of covered call contracts, which began in January 2026. The premium received from the sale of the call option is recognized as a component of crypto and related revenue in our condensed consolidated statement of operations. The premium is amortized to crypto and related revenue over the life of the option using the straight-line method. We record the option as a derivative liability on our condensed consolidated balance sheet at fair value, with changes in fair value recognized in crypto and related revenue until the option expires or is exercised. If the option is exercised, we settle the underlying security at the exercise price, and the premium is recognized as a reduction of the carrying amount of the $DATA token
Previous wording
Our spirits business net revenues consist primarily of the sale of spirits and services domestically in the United States. Customers consist primarily of wholesale distributors and direct consumers. Substantially all revenue is recognized from products transferred at a point in time when control is transferred, and contract performance obligations are met. Service revenue represents fees for distinct value-added services that we provide to third parties, including production, bottling, marketing, consulting and other services, including for the TBN, aimed at growing and improving brands and sales. Service revenue is recognized over the period in which the service is provided.
Current wording
Our spirits business net revenues consist primarily of the sale of spirits and services domestically in the United States. Customers consist primarily of wholesale distributors and direct consumers. Substantially all revenue is recognized from products transferred at a point in time when control is transferred, and contract performance obligations are met. Service revenue represents fees for distinct value-added services that we provide to third parties, including production, bottling, marketing, consulting and other services, including for the TBN, aimed at growing and improving brands and sales. Service revenue is recognized over the period in which the service is provided. On a go-forward basis, spirits revenue may also include addition licensing fees we earn by licensing out our brands or recipes to third parties to produce, market and sell.
Previous wording
We recognize the staking and validator business cost of revenue in the same manner that the related revenue is recognized. Our cost of revenue consists of Amazon Web Services data center incidences that run the validator protocol and software, financial software to track each token earned and their value, consulting agreements related to managing the validator work and contracted computer programmers to insure validator uptime.
Current wording
We recognize the staking and validator business cost of revenue in the same manner that the related revenue is recognized. Our cost of revenue consists of Amazon Web Services data center incidences that run the validator protocol and software, financial software to track each token earned and their value, consulting agreements related to managing the validator work, contracted computer programmers to insure validator uptime and the net rewards owed to third parties for which we perform validator services. Specifically, per the agreements of the layer 1 protocol, of the rewards derived from staking on behalf of third parties, we keep 5% of the rewards earned and pay 95% of the rewards to the third party token owners, and this 95% paid out to third parties is treated as an expense. Accounting rules require we book the full revenue associated with the total rewards earned and then deduct as a cost the 95% of the rewards payable to the third party token owners. This has the effect of increasing the total cost of revenue associated with staking and reducing our gross profits and gross margins accordingly.
Previous wording
•Market conditions that may impact the market value of our investment in intangible digital assets ($IP Tokens);
Current wording
•Market conditions that may impact the market value of our investment in intangible digital assets ($DATA tokens);
Previous wording
Sales and marketing expenses through March 31, 2026 consisted primarily of employee-related costs for individuals working in our sales and marketing departments and the executives to whom such employees report and the executives whose primary function was sales or marketing. The expenses included our personnel responsible for managing our e-commerce platform, wages, commissions and bonuses for our outside sales team members who market and sell our products to distributors and retail end users and the associated costs of such sales. Sales and marketing expenses also included the costs of social media, influencers, and other traditional marketing costs, costs related to trade shows and events and an allocated portion of overhead costs. With the closure of our retail tasting rooms as of December 31, 2025, all staffing and managerial sales and marketing expenses related to those operations were eliminated for the period ending March 31, 2026.
Current wording
Sales and marketing expenses through June 30, 2026 consisted primarily of employee-related costs for individuals working in our sales and marketing departments and the executives to whom such employees report and the executives whose primary function was sales or marketing. The expenses included our personnel responsible for managing our e-commerce platform, wages, commissions and bonuses for our outside sales team members who market and sell our products to distributors and retail end users and the associated costs of such sales. Sales and marketing expenses also included the costs of social media, influencers, and other traditional marketing costs, costs related to trade shows and events and an allocated portion of overhead costs. With the closure of our retail tasting rooms as of December 31, 2025, all staffing, managerial, and sales and marketing expenses related to those operations were eliminated effective January 1, 2026.
Previous wording
As of March 31, 2026, we had outstanding restricted stock units (“RSUs”) that, upon vesting, will settle into an aggregate of 34,938 shares based upon the grant date fair value of $4,328,639. During the three months ended March 31, 2026, we granted 8,975 RSUs to officers and employees and 10,000 to a consultant for investor relations support.
Current wording
As of June 30, 2026, we had outstanding restricted stock units (“RSUs”) that, upon vesting, will settle into an aggregate of 27,904 shares of common stock based upon the grant date fair value of $3,054,775.300. During the three and six months ended June 30, 2026, respectively, we granted 0 and 8,975 RSUs to officers and employees, and 2,250 and 12,250 RSUs to a consultant for investor relations support.
Previous wording
Our intangible digital assets consist solely of $IP Tokens in our digital treasury. These assets are remeasured to fair value at the end of each reporting period, with changes recognized in Change in Fair Value of Intangible Digital Assets on the condensed consolidated statements of operations. For the three months ended March 31, 2026, we recognized a fair value loss of approximately $62,110,000 driven by market fluctuations in the $IP Token. As of March 31, 2026, the fair value of intangible digital assets on our condensed consolidated balance sheet was approximately $24,844,000 using the closing price per $IP Token of $0.5041. As of December 31, 2025, the fair value of intangible digital assets on our condensed consolidated balance sheet was approximately $91,701,000 using the closing price per $IP Token of $1.719. We continue to hold substantially all $IP Tokens for investment and may stake them periodically.
Current wording
Our intangible digital assets consist primarily of $DATA tokens in our digital treasury. These assets are remeasured to fair value at the end of each reporting period, with changes recognized in Change in Fair Value of Intangible Digital Assets on the condensed consolidated statements of operations. For the three and six months ended June 30, 2026, respectively, we recognized a fair value loss of approximately $11,662,000 and $76,132,000 driven by market fluctuations in the $DATA token. As of June 30, 2026, the fair value of intangible digital assets on our condensed consolidated balance sheet was approximately $12,818,000 using the closing price per $DATA token of $0.2955. As of December 31, 2025, the fair value of intangible digital assets on our condensed consolidated balance sheet was approximately $91,701,000 using the closing price per $DATA token of $1.719. We continue to hold substantially all $DATA tokens for investment and may stake them periodically.
Previous wording
As of March 31, 2026 and December 31, 2025, respectively, we had a 11.8% and 11.8% ownership interest in Flavored Bourbon, LLC, respectively. For the year ended December 31, 2025 we recorded an impairment charge of approximately $3,357,000 on our investment in Flavored Bourbon LLC. For the year ended December 31, 2024 we recorded a gain of approximately $3,421,000 on our investment in Flavored Bourbon LLC.
Current wording
As of June 30, 2026 and December 31, 2025, respectively, we had a 11.8% and 11.8% ownership interest in Flavored Bourbon, LLC, respectively. For the year ended December 31, 2025, we recorded an impairment charge of approximately $3,357,000 on our investment in Flavored Bourbon LLC.
Previous wording
On October 23, 2025, we announced that we would close our five owned and operated tasting rooms in Washington and Oregon effective December 31, 2025, along with the transition of our production from in-house production to third party contract producers beginning in the first quarter of 2026 (the “Restructuring”). As of December 31, 2025, we wrote off and expensed approximately $3,393,000 of: property and equipment; operating lease ROU assets and lease liabilities; and other related expenses as part of the Restructuring. During the three months ended March 31, 2026, we recorded additional expenses related to the Restructuring of approximately $291,000 of future lease obligation, and personnel related expenses.
Current wording
On October 23, 2025, we announced that we would close our five owned and operated tasting rooms in Washington and Oregon effective December 31, 2025, along with the transition of our production from in-house production to third party contract producers beginning in the first quarter of 2026 (the “Restructuring”). As of December 31, 2025, we wrote off and expensed approximately $3,393,000 of: property and equipment; operating lease ROU assets and lease liabilities; and other related expenses as part of the Restructuring. During the three and six months ended June 30, 2026, we recorded additional expenses related to the Restructuring of approximately $408,000 and $699,000, respectively, of future lease obligation, and personnel related expenses.
Previous wording
As of December 31, 2024, we had approximately $61.5 million of federal NOL carryforwards and approximately $192 thousand of federal tax credits subject to Section 382 limitations. During the year ended December 31, 2025, we generated additional federal NOLs of approximately $13.3 million and $32,000 of federal tax credit, resulting in total federal NOL carryforwards of approximately $74.8 million and federal tax credit approximately $224,000 as of December 31, 2025, before consideration of any limitations under Section 382. Following the ownership changes, our ability to utilize its NOLs and certain tax credits is limited on an annual basis.
Current wording
As of December 31, 2024, we had approximately $61.5 million of federal NOL carryforwards and approximately $192,000 of federal tax credits subject to Section 382 limitations. During the year ended December 31, 2025, we generated additional federal NOLs of approximately $13.3 million and $32,000 of federal tax credit, resulting in total federal NOL carryforwards of approximately $74.8 million and federal tax credit approximately $224,000 as of December 31, 2025, before consideration of any limitations under Section 382. Following the ownership changes, our ability to utilize our NOLs and certain tax credits is limited on an annual basis.
Previous wording
Cost of Revenue of approximately $543,000 and $820,000, and Operating Expenses of approximately $67,562,000 and $2,723,000 for the three months ended March 31, 2026 and 2025, respectively, included non-cash share-based compensation for employees (personnel) and consultants of approximately $943,000 and $0, respectively, as follows:
Current wording
Cost of revenue of approximately $327,000 and $1,095,000, and operating expenses of approximately $15,240,000 and $6,876,000 for the three months ended June 30, 2026 and 2025, respectively, included non-cash share-based compensation for employees (personnel) and consultants of approximately $772,000 and $3,127,000, respectively, as follows:
Previous wording
Net revenues were approximately $1,453,000 and $0 for the three months ended March 31, 2026 and 2025, respectively, an increase of approximately $1,453,000, or 100%, period over period. There were no comparable revenues in the three months ended March 31, 2025 as we began recognizing staking and validator revenues on September 18, 2025 and revenue from sale of covered call contracts in January of 2026. For the three months ended March 31, 2026, substantially all crypto and related validator business revenue was related to self-staking.
Current wording
Net revenues were approximately $554,000 and $0 for the three months ended June 30, 2026 and 2025, respectively, an increase of approximately $554,000, or 100%, period over period. There were no comparable revenues in the three months ended June 30, 2025 as we began recognizing staking and validator revenues on September 18, 2025 and revenue from sale of covered call contracts in January of 2026. For the three months ended June 30, 2026, substantially all crypto and related validator business revenue was related to self-staking. Net revenues in this segment include all revenues we realize from staking our own tokens and all revenue from the staking of tokens owned by third parties before paying out 95% of the rewards owed to those third party token owners. Of the approximately [$391,000] in Staking Revenue for the three months ended June 30, 2026 [$371,000] was derived from our own staking rewards and approximately [$20,000] was the total realized from staking rewards for tokens owned by third parties, 95% of which, or approximately [$19,000], were paid to the third party token owners and is included in cost of revenue.
Previous wording
Of the total validator business revenues related to cryptocurrency we drive operational revenues in two ways: 1) self-staking (tokens we own being staked on our own validator); and 2) staking of third-party tokens. Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that we control. Validator services were tested in early September and were fully functional as of September 18, 2025, meaning the revenue from this activity was only active for the fourth quarter of 2025, and approximately two weeks of the twelve weeks of the third quarter of 2025. In addition to staking revenue, we also generate crypto and related revenue from the sale of covered call contracts, which began in January 2026 and totaled approximately $240,000 in covered call premiums for the three months ended March 31, 2026.
Current wording
Of the total validator business revenues related to cryptocurrency, we drive operational revenues in two ways: 1) self-staking (tokens we own being staked on our own validator); and 2) staking of third-party tokens. Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that we control. Validator services were tested in early September and were fully functional as of September 18, 2025, meaning the revenue from this activity was only active for the fourth quarter of 2025, and approximately two weeks of the twelve weeks of the third quarter of 2025. In addition to staking revenue, we also generate crypto and related revenue from the sale of covered call contracts, which began in January 2026 and totaled approximately $163,000 in covered call premiums for the three months ended June 30, 2026.
Previous wording
Cost of revenue was approximately $143,000 and $0 for the three months ended March 31, 2026 and 2025, respectively, an increase of approximately $143,000 from $0 period over period. Cost of revenue consisted primarily of: technology platform expenses, external engineering support, consulting services, and blockchain transaction fees and blockchain rewards payable to third party delegators related to crypto operating activities; and commissions paid on covered call contracts. There was no comparable cost of revenue in the three months ended March 31, 2025 as we began recognizing revenues from staking and validator activities and covered call contracts; and incurring related cost of revenue once our validator services was operational on September 18, 2025 and we began entering into covered call contracts in January 2026.
Current wording
Cost of revenue was approximately $134,000 and $0 for the three months ended June 30, 2026 and 2025, respectively, an increase of approximately $134,000 from $0 period over period. Cost of revenue consisted primarily of: technology platform expenses; external engineering support; consulting services for managing our crypto assets and investment strategies; blockchain transaction fees and blockchain rewards payable to third party delegators related to crypto operating activities; and commissions paid on covered call contracts. Of the blockchain rewards payable to third parties, they are derived from staking on behalf of third parties, for which we keep 5% of the rewards earned and pay 95% of the rewards to the third party token owners. Accounting rules require we book the full revenue associated with the total rewards earned and then deduct as a cost the 95% of the rewards payable to the third party token owners, which has the effect of increasing the total cost of revenue associated with staking and reducing our gross profits and gross margins accordingly. Cost of revenue associated with the 95% of staking rewards owed to third parties was approximately $19,000 of the $119,000 total cost of revenue noted in the table below. There was no comparable cost of revenue in the three months ended June 30, 2025 as we began recognizing revenues from staking and validator activities and covered call contracts; and incurring related cost of revenue once our validator services was operational on September 18, 2025 and we began entering into covered call contracts in January 2026.
Previous wording
Gross profit was approximately $1,310,000 and $0 for the three months ended March 31, 2026 and2025, respectively, an increase of approximately $1,310,000, or 100%, period over period, and included:
Current wording
Gross profit was approximately $419,000 and $0 for the three months ended June 30, 2026 and 2025, respectively, an increase of approximately $419,000, or 100%, period over period, and included:
Previous wording
Gross Margin numbers above are based on the total revenues for the three months ended March 31, 2026 and 2025 as follows:
Current wording
The Gross Profit numbers above were based on the total revenues for the three months ended June 30, 2026 and 2025 as follows:
Previous wording
The approximately $592,000 net decrease in product revenues, period over period, included:
Current wording
The approximately $894,000 net decrease in product revenues, period over period, included:
Previous wording
The approximately $75,000 decrease in wholesale product revenues was primarily the result of halting production of a selection of lower margin SKUs items and the timing of orders through the wholesale channel moving between quarters.
Current wording
The approximately $361,000 decrease in wholesale product revenues was primarily the result of halting production of a selection of lower margin products and the timing of orders through the wholesale channel moving between quarters.
Previous wording
The approximately $517,000 decrease in retail revenues was primarily a result of having closed all of our retail tasting rooms as of December 31, 2025, with no retail revenue being generated in the period ending March 31, 2026.
Current wording
The approximately $533,000 decrease in retail revenues was primarily a result of having closed all of our retail tasting rooms as of December 31, 2025, with no retail revenue being generated in the period ending March 31, 2026.
Previous wording
The approximately $240,000 decrease in net services revenue period over period included:
Current wording
The approximately $245,000 decrease in net services revenue period over period included:
Previous wording
Net services revenue decreased by approximately $240,000 period over period, driven by an approximately $239,000 decrease in retail services having closed all of our retail tasting rooms as of December 31, 2025, with no retail services revenue being generated in the period ending March 31, 2026.
Current wording
Net services revenue decreased by approximately $245,000 period over period, driven by an approximately $247,000 decrease in retail services having closed all of our retail tasting rooms as of December 31, 2025, with no retail services revenue being generated in the three months ended June 30, 2026.
Previous wording
Cost of revenue was approximately $150,000 and $820,000 for the three months ended March 31, 2026 and 2025, respectively, an approximately $670,000 or 81.7% decrease, period over period. Cost of revenue for the three months ended March 31, 2026 and 2025 included approximately $5,000 and $0, respectively, of non-cash share-based compensation expenses related to RSU grant awards recognized for production employees.
Current wording
Cost of revenue was approximately $193,000 and $1,095,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of approximately $902,000, or 82.4%, period over period. Cost of revenue for the three months ended June 30, 2026 and 2025, respectively, included approximately $5,000 and $121,000 of non-cash share-based compensation expenses related to RSU grant awards recognized for production employees.
Previous wording
The approximately $670,000 decrease in net products cost of revenue period over period included: a decrease in product cost of approximately $664,000 to approximately $150,000 for the three months ended March 31, 2026, from approximately 814,000 for the three months ended March 31, 2025 which included an approximately $184,000 decrease in unabsorbed overhead to approximately $277,000 as of March 31, 2026 from approximately $461,000 as of March 31, 2025. The reduction of $670,000 in costs was driven largely by the closure of all of our retail tasting rooms as of December 31, 2025, with no retail services revenue being generated in the period ending March 31, 2026 and the exiting of certain low margin spirits SKUs in wholesale.
Current wording
The approximately $902,000 decrease in net spirits business cost of revenue period over period included: a decrease in product cost of approximately $890,000 to approximately $193,000 for the three months ended June 30, 2026, from approximately $1,083,000 for the three months ended June 30, 2025, and a decrease in unabsorbed overhead of approximately $497,000 to approximately $110,000 as of June 30, 2026 from approximately $607,000 as of June 30, 2025. The approximately $890,000 decrease in products costs was driven largely by the closure of all of our retail tasting rooms as of December 31, 2025, with no retail services revenue being generated in the period ending June 30, 2026 and the exiting of certain low margin spirits SKUs in wholesale.
Previous wording
Services cost of revenue decreased by approximately $6,000 to approximately $0 for the three months ended March 31, 2026 from approximately $6,000 for the year ended March 31, 2025 primarily resulting from exiting a low-margin third-party production contract for another brand and the wind down of barrel production for third parties.
Current wording
Services cost of revenue decreased by approximately $12,000 to approximately $0 for the three months ended June 30, 2026 from approximately $12,000 for the three months ended June 30, 2025 primarily resulting from us ending a low-margin third-party production contract for another brand and the wind down of barrel production for third parties.
Previous wording
Unabsorbed overhead as a component of product cost of 69.3% and 56.6% for the three months ended March 31, 2026 and 2025, respectively, contribute to gross margins. Unabsorbed overhead is a function of costs attributable to the excess capacity and associated overhead in our system. As we move to third party production in 2026 and we move into 2026 with a significantly reduced headcount, we are already seeing a significant reduction in costs attributed to unabsorbed overhead. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Current wording
Unabsorbed overhead as a component of product cost of revenue of approximately 56.8% and 56.0% for the three months ended June 30, 2026 and 2025, respectively, has been a significant contributors to our overall low products gross margins. Unabsorbed overhead is a function of costs attributable to the excess capacity and associated overhead in our system. As we move to third party production in 2026 there will be a transitionary period where we still report Production Overhead costs carried against lower sales, leading to a higher percentage of costs during this period. Once we complete the transition of our final production lease and equipment disposition in 2026, we expect this cost to be largely eliminated in 2027 and beyond as we move to third party and licensee production. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Previous wording
The approximately $414,000 decrease in products cost of revenue period over period is further detailed as follows:
Current wording
The approximately $890,000 decrease in net products cost of revenue period over period is further detailed as follows:
Previous wording
For the three months ended March 31, 2026 and 2025, respectively, the approximately $(155,000) and $24,000 in Products Gross Profit / (Loss), and the resulting improvement in Gross Margin of (63.0)% for the period ending March 31, 2026 compared to just 2.8% for the period ended March 31, 2025, shows the impact of our reduction in excess capacity by moving to third-party production, thereby reducing unabsorbed overhead to approximately $277,000 in the period ending March 31, 2026 from $461,000 during the same period ended 2025.
Current wording
For the three months ended June 30, 2026 and 2025, respectively, the approximately $(26,000) and $(23,000) in products gross profit / (loss), and the resulting decline in products gross margin to (15.7)% for the three months ended June 30, 2026 compared to (2.2)% for the three months ended June 30, 2025, shows the impact of our reduction in excess capacity by moving to third-party production, thereby reducing unabsorbed overhead to approximately $110,000 in the three months ended June 30, 2026 from $607,000 during the three months ended June 30, 2025.
Previous wording
To provide a more detailed view to our performance for products and services based purely on the direct input costs we remove unabsorbed overhead expenses for the following analysis. Gross profit excluding unabsorbed overhead was approximately $136,000 and $733,000 for the three months ended March 31, 2026 and 2025, respectively, a decrease of approximately $(597,000), or 81.4%, period over period, and included:
Current wording
To provide a more detailed view to our performance for products and services based purely on the direct input costs we remove unabsorbed overhead expenses for the following analysis. Products gross profit excluding unabsorbed overhead was approximately $84,000 and $584,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of approximately $500,000, or 85.7%, period over period, and included:
Previous wording
Gross Margin excluding unabsorbed overhead of 52.4% for the three months ended March 31, 2026 compared to 67.1% for the same period in 2025 shows the impact of our continued transition and the exiting of the higher margin activities that were related to our retail tasting rooms that closed on December 31, 2025.
Current wording
Products gross margin excluding unabsorbed overhead of 50.3% for the three months ended June 30, 2026 compared to 55.1% for the same period in 2025 shows the impact of our continued transition and the exiting of the higher margin activities that were related to our retail tasting rooms that closed on December 31, 2025.
Previous wording
The overall approximately $873,000 decrease in sales and marketing expense was the result of a mix of reduced headcount in the wholesale sales team and retail tasting room sales staff as a result of closing the retail tasting rooms on December 31, 2025. This also removes from the cost the structure all costs associated with rent and operational overhead associated with the tasting rooms.
Current wording
The overall approximately $1,648,000 decrease in sales and marketing expense period over period was the result of a mix of reduced headcount in the wholesale sales team and retail tasting room sales staff as a result of closing the retail tasting rooms on December 31, 2025. This also removed from the cost structure all costs associated with rent and operational overhead associated with the tasting rooms.
Previous wording
General and administrative expenses increased by approximately $1,242,000 to $2,650,000 for the three months ended March 31, 2026, from approximately $1,408,000 in the three months ended March 31, 2025, driven primarily by an approximately: $628,000 increase in professional fees incurred related to contract Chief Investment Officer services, other outside professional services management of our crypto currency assets, additional public relations and investor relations expenses via third-party professionals and high accounting and audit preparation services to prepare us for our first audit with new additional cryptocurrency accounting obligations; $391,000 increase in non-cash share-based compensation, including RSU grants tied to deferred compensation and employee incentives; and $455,000 increase in share-based compensation professional fees related to RSU grants offered to third party service providers. General and administrative expenses included offsetting decreases of approximately: $233,000 in depreciation; and $91,000 in leases and rentals, primarily a result of reduced warehouse space in the three months ended March 31, 2026 compared to the three months ended March 31, 2025 and the restructuring of the spirits business at the end of 2025. Non-cash share-based compensation remained a significant component of G&A, representing approximately one-third of total expenses in both periods.
Current wording
General and administrative expenses decreased by approximately $1,651,000 to approximately $3,253,000 for the three months ended June 30, 2026, from approximately $4,904,000 in the three months ended June 30, 2025, driven primarily by an approximately: $1,060,000 decrease in non-cash personnel share-based compensation, including RSU grants tied to deferred compensation and employee incentives. General and administrative expenses also included a decrease of approximately $212,000 in depreciation;a decrease of approximately $437,000 in other -share based related primarily to director fees; a decrease of approximately 376,000 in other; and a decrease of approximately $61,000 in leases and rentals, primarily a result of reduced warehouse space in the three months ended June 30, 2026 compared to the three months ended June 30, 2025 and the restructuring of the spirits business at the end of 2025. The respective periods also included offsetting approximately $575,000 increase in professional fees incurred related to contract Chief Investment Officer services, other outside professional services management of our crypto currency assets, additional public relations and investor relations expenses via third-party professionals and high accounting and audit preparation services to prepare us for our first audit with new additional cryptocurrency accounting obligations; an approximately $384,000 increase in share-based compensation professional fees related to RSU grants offered to third party service providers; and an approximately $118,000 increase in business insurance.
Previous wording
Interest expense decreased by approximately $511,000 to approximately $12,000 for the three months ended March 31, 2026, compared to approximately $523,000 for the three months ended March 31, 2025. The decrease was primarily due to the settlement of the Silverview loan in August 2025.
Current wording
Interest expense decreased by approximately $580,000 to approximately $15,000 for the three months ended June 30, 2026, compared to approximately $595,000 for the three months ended June 30, 2025. The decrease was primarily due to the settlement of the Silverview loan in August 2025.
Previous wording
Change in fair value of intangible digital assets resulted in a loss of approximately $62.1 million for the three months ended March 31, 2026, (based on a closing price on March 31, 2026 of $0.5041 per $IP Token), compared to $0 for the three months ended March 31, 2025, as we had no similar $IP Tokens held for investment as of March 31, 2025 and began recognizing fair value adjustments on $IP Tokens upon closing of the August 15, 2025 PIPE transaction. The loss for the three months ended March 31, 2026 was primarily attributable to unfavorable market movements in the quoted price of $IP Tokens held for investment. We measure fair value using quoted prices in our principal market at the end of each reporting period, with changes recognized in Change in Fair Value of Intangible Digital Assets on the condensed consolidated statements of operations.
Current wording
Change in fair value of intangible digital assets resulted in a loss of approximately $11,662,000 for the three months ended June 30, 2026, (based on a closing price on June 30, 2026 of $0.2955 per $DATA token), compared to $0 for the three months ended June 30, 2025, as we had no similar $DATA tokens held for investment as of June 30, 2025 and began recognizing fair value adjustments on $DATA tokens upon closing of the August 15, 2025 PIPE transaction. The loss for the three months ended June 30, 2026 was primarily attributable to unfavorable market movements in the quoted price of $DATA tokens held for investment. We measure fair value using quoted prices in our principal market at the end of each reporting period, with changes recognized in Change in Fair Value of Intangible Digital Assets on the condensed consolidated statements of operations.
Previous wording
In addition, during the three months ended March 31, 2026, we sold 1 million $IP Tokens into the market for cash proceeds of approximately $798,000 before deducting any fees or commissions on any such sales, for a loss on sale of intangible digital assets of approximately $2,360,000 separate from the loss attributed to the change in fair value of intangible digital assets recognized for the same time period.
Current wording
During the three months ended March 31, 2026, we sold 1 million $DATA tokens into the market for cash proceeds of approximately $798,000 before deducting any fees or commissions on any such sales, for a loss on sale of intangible digital assets of approximately $2,360,000, which is included in the loss attributed to the change in fair value of intangible digital assets recognized for the same time period.
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Rearranged current paragraphs (33)
Current report — wording carried from elsewhere
Products cost of revenue decreased by approximately $890,000 period over period, driven primarily by an approximately $220,000 decrease in wholesale product costs as we continued shifting away from lower-margin wholesale volume toward a focus on direct-to-consumer sales, and an approximately $497,000 decrease in unabsorbed overhead reflecting reduced capacity as production focus evolved. (See below for our discussion on Gross Margins related to unabsorbed overhead in Non-GAAP Financial Measures).
Current report — wording carried from elsewhere
Gross Profit / (Loss) - Analysis of Exclusion of Unabsorbed Overhead — Spirits Business
Current report — wording carried from elsewhere
As reflected in the rollout schedule included in the analysis, a portion of our tax attributes will become available over time through approximately 2044 and subsequent tax years, subject to our generating sufficient taxable income to utilize those attributes.
Current report — wording carried from elsewhere
Comparison of the Results of Operations for the Six Months Ended June 30, 2026 and 2025
Current report — wording carried from elsewhere
The numbers presented below that have been rounded for presentation purposes have been rounded individually. As a result, totals may reflect the effect of differences between: aggregating the individually rounded component numbers; and the rounding of the total of the individual (non-rounded) component numbers. In cases where rounding occurred, the amount of the rounding difference is generally $1,000 or less. Such differences are considered to be insignificant.
Current report — wording carried from elsewhere
The following table summarizes our results of operations for the six months ended June 30, 2026 and 2025.
Current report — wording carried from elsewhere
Cost of revenue of approximately $871,000 and $1,915,000, and operating expenses of approximately $82,802,000 and $9,599,000 for the six months ended June 30, 2026 and 2025, respectively, included non-cash share-based compensation for employees (personnel) and consultants of approximately $2,311,000 and $3,127,000, respectively, as follows:
Current report — wording carried from elsewhere
Net Revenues - Crypto and Related Business
Current report — wording carried from elsewhere
Of the total validator business revenues related to cryptocurrency we drive operational revenues in two ways: 1) self-staking (tokens we own being staked on our own validator); and 2) staking of third-party tokens. Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that we control. Validator services were tested in early September 2025 and were fully functional as of September 18, 2025, meaning the revenue from this activity was only active for the fourth quarter of 2025, and approximately two weeks of the twelve weeks of the third quarter of 2025. In addition to staking revenue, we also generate crypto and related revenue from the sale of covered call contracts, which began in January 2026 and totaled approximately $403,000 in covered call premiums for the six months ended June 30, 2026.
Current report — wording carried from elsewhere
Cost of Revenue — Crypto and Related Business
Current report — wording carried from elsewhere
Gross Profit — Crypto and Related Business
Current report — wording carried from elsewhere
It is important to note that there were no comparable cost of revenue in the six months ended June 30, 2025 as we began recognizing staking and validator revenues and incurring related cost of revenue upon beginning our validator service on September 18, 2025.
Current report — wording carried from elsewhere
Gross Profit Analysis — Crypto and Related Business
Current report — wording carried from elsewhere
The approximately $1,487,000 net decrease in product revenues, period over period, included:
Current report — wording carried from elsewhere
The approximately $437,000 decrease in wholesale product revenues was primarily the result of halting production of a selection of lower margin products and the timing of orders through the wholesale channel moving between quarters.
Current report — wording carried from elsewhere
The approximately $1,050,000 decrease in retail revenues was primarily a result of having closed all of our retail tasting rooms as of December 31, 2025, with no retail revenue being generated in the period ending March 31, 2026.
Current report — wording carried from elsewhere
The approximately $485,000 decrease in net services revenue period over period included:
Current report — wording carried from elsewhere
Services cost of revenue decreased by approximately $18,000 to $0 for the six months ended June 30, 2026 from approximately $18,000 for the six months ended June 30, 2025 primarily resulting from us ending a low-margin third-party production contract for another brand and the wind down of barrel production for third parties.
Current report — wording carried from elsewhere
The approximately $1,278,000 decrease in net products cost of revenue period over period is further detailed as follows:
Current report — wording carried from elsewhere
Gross Margin numbers above are based on the total net revenues for the six months ended June 30, 2026 and 2025 as follows:
Current report — wording carried from elsewhere
To provide a more detailed view to our performance for products and services based purely on the direct input costs we remove unabsorbed overhead expenses for the following analysis. Products gross profit excluding unabsorbed overhead was approximately $206,000 and $1,044,000 for the six months ended June 30, 2026 and 2025, respectively, a decrease of approximately $838,000, or 80%, period over period, and included:
Current report — wording carried from elsewhere
Products gross margin excluding unabsorbed overhead of 50.0% for the six months ended June 30, 2026 compared to 55.0% for the same period in 2025 shows the impact of our continued transition and the exiting of the higher margin activities that were related to our retail tasting rooms that closed on December 31, 2025.
Current report — wording carried from elsewhere
The overall approximately $2,520,000 decrease in sales and marketing expense period over period was the result of a mix of reduced headcount in the wholesale sales team and retail tasting room sales staff as a result of our closure of the retail tasting rooms on December 31, 2025. This also removed from the cost structure all costs associated with rent and operational overhead associated with the tasting rooms.
Current report — wording carried from elsewhere
General and administrative expenses decreased by approximately $409,000 to approximately $5,903,000 for the six months ended June 30, 2026, from approximately $6,312,000 in the six months ended June 30, 2025, driven primarily by an approximately: $536,000 decrease in personnel cash wages and related non-cash (payroll) expenses; and $668,000 decrease in non-cash personnel share-based compensation, including RSU grants tied to deferred compensation and employee incentives; . General and administrative expenses also included: a decrease of approximately $445,000 in depreciation; a decrease of approximately $152,000 in leases and rentals primarily a result of reduced warehouse space in the six months ended June 30, 2026 compared to the six months ended June 30, 2025 and the restructuring of the spirits business at the end of 2025;;and a decrease of approximately $337,000 in other-share based related primarily to director fees. Non-cash share-based compensation remained a significant component of general and administrative expense in both periods. The respective periods also included offsetting: approximately $607,000 increase in professional fees incurred related to contract Chief Investment Officer services, other outside professional services management of our crypto currency assets, additional public relations and investor relations expenses via third-party professionals and high accounting and audit preparation services to prepare us for our first audit with new additional cryptocurrency accounting obligations; approximately $839,000 increase in share based compensation professional fees related to RSU grants to third party service providers; approximately $225,000 increase in business insurance; and an increase of approximately $60,000 in other.
Current report — wording carried from elsewhere
Interest expense decreased by approximately $1,091,000 to approximately $27,000 for the six months ended June 30, 2026, compared to approximately $1,119,000 for the six months ended June 30, 2025. The decrease was primarily due to the settlement of the Silverview loan in August 2025.
Current report — wording carried from elsewhere
Gain / (Loss) on Intangible Digital Assets
Current report — wording carried from elsewhere
Change in fair value of intangible digital assets resulted in a loss of approximately $76.1 million for the six months ended June 30, 2026 (based on a closing price on June 30, 2026 of $0.2955 per $DATA token), compared to $0 for the six months ended June 30, 2025, as we had no similar $DATA tokens held for investment as of June 30, 2025 and began recognizing fair value adjustments on $DATA tokens upon closing of the August 15, 2025 PIPE transaction. The loss for the six months ended June 30, 2026 was primarily attributable to unfavorable market movements in the quoted price of $DATA tokens held for investment. We measure fair value using quoted prices in our principal market at the end of each reporting period, with changes recognized in Change in Fair Value of Intangible Digital Assets on the condensed consolidated statements of operations.
Current report — wording carried from elsewhere
During the six months ended June 30, 2026, we sold 1 million $DATA tokens into the market for cash proceeds of approximately $798,000 before deducting any fees or commissions on any such sales, for a loss on sale of intangible digital assets of approximately $2,360,000[,which is included in] the loss attributed to the change in fair value of intangible digital assets recognized for the same time period.
Current report — wording carried from elsewhere
As of December 31, 2024, we had approximately $61.5 million of federal NOL carryforwards and approximately $192,000 of federal tax credits subject to Section 382 limitations. During the year ended December 31, 2025, we generated additional federal NOLs of approximately $13.3 million, resulting in total federal NOL carryforwards of approximately $74.8 million as of December 31, 2025, before consideration of any limitations under Section 382. Following the ownership changes, our ability to utilize our NOLs and certain tax credits is limited on an annual basis. The analysis determined an initial base annual Section 382 limitation of approximately $1.0 million, which may be increased in certain years by recognized built-in gains attributable to our assets.
Current report — wording carried from elsewhere
The analysis also indicates that approximately $189,000 of tax credits may be permanently limited and therefore unavailable for utilization as a result of the Section 382 limitations. We will update this estimate to reflect the impact of additional NOLs generated in 2025 of approximately $13.3 million and any resulting changes in the amount of tax attributes that may be limited or available in future periods.
Current report — wording carried from elsewhere
We will continue to evaluate the impact of these limitations as part of its ASC 740 income tax accounting, including the assessment of deferred tax assets and related valuation allowances. Future ownership changes, additional losses generated in 2025 and subsequent years, or changes in taxable income projections could further impact our ability to utilize our NOL carryforwards and other tax attributes.
Current report — wording carried from elsewhere
During the six months ended June 30, 2026, we estimate an increase in our tax loss carryforward of approximately $17.3 million for federal income taxes (based on the applicable statutory federal tax rate of 21%) based on our year to date net loss. While we believe that this benefit may be available to offset taxable income in future periods, the amount and timing of its utilization is subject to the Section 382 annual limitation and our ability to generate future taxable income. As a result of these uncertainties, we have elected to fully reserve against the use of these tax benefits in our financial statements as of June 30, 2026, and accordingly no related income tax benefit has been recognized in the accompanying condensed consolidated financial statements.
Current report — wording carried from elsewhere
Net Cash Provided by / (Used in) Investing Activities
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Previous report — wording carried elsewhere
In August 2025, we determined to focus our growing cryptocurrency efforts on the native cryptocurrency of the Story Network referred to as $IP Tokens. As part of this business segment, we established a new validator business related to $IP Tokens, staking 43.5 million of the 53.2 million $IP Tokens we secured in the August 15, 2025 PIPE transaction. To become a network validator, a holder of $IP Tokens is required to put up or “stake” $IP Tokens as collateral (like a security deposit) that shows the Story Network that it has “skin in the game.” A cryptocurrency validator is like a digital “notary” or
Previous report — wording carried elsewhere
Development of our Cryptocurrency Validator Business
Previous report — wording carried elsewhere
The additional NOLs generated during 2025 of approximately $13.3 million may also be subject to the Section 382 limitation to the extent such losses are treated as pre-change attributes or otherwise limited under applicable tax rules. As a result, we expect that a portion of its NOL carryforwards, including those generated in 2025, will be utilizable only over an extended period of time in accordance with the applicable annual limitation amounts.